Europe's car market faces tough second half

Paul McVeigh is managing editor at Automotive News Europe.Paul McVeigh is managing editor at Automotive News Europe.
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The good news for new-car sales in Europe is over. After EU sales rose 7.1 percent in May, industry association ACEA reported a 8.1 percent decline last month. Market watchers expect little cheer for the rest of the year as the region's debt crisis and austerity measures keep buyers out of showrooms.

The emergence of a two-tier European market will continue in the second half, with growth in Germany where a wider macroeconomic recovery has been boosted by rising exports to China, according to IHS Global Insight.

In southern Europe, Italy's emergency savings package to prevent the country following Ireland and Greece into crisis will have an impact throughout the Eurozone, as Italy is the zone's third-largest economy.

"This ongoing macroeconomic turbulence is set to continue, with the region's weaker economies which have high debt levels causing ongoing concern about the economic integrity of the Eurozone," IHS Global Insight says in its latest analysis of European car sales.

PricewaterHouseCoopers' Autofacts says a development causing concern is the sales decline in June in mid-tier markets, such as Finland, the Netherlands, Norway and Sweden, where growth was one of the main supports for European demand in the first half.

"Whilst fewer working days may have accounted for some of the contraction, this may signal the start of a slowdown in demand in these markets after the very strong growth for the past 12-18 months," warns Michael Gartside, a senior analyst with Autofacts.

IHS Global Insight forecasts a slowdown in sales momentum in Europe in the second half. It predicts overall 2011 sales will fall 3 percent from last year to just over 13 million as economies with high levels of public debt, such as the UK, Italy and Spain, continue to implement austerity measures, further undermining consumer confidence and disposable income levels.

JATO Dynamics is also pessimistic. Gareth Hession, the company's vice president of research, said: "Despite some positive signs earlier this year, ongoing economic instability in many markets has kept many people away from dealerships. The success of new models such as the new Ford Focus and Audi's A1 demonstrates the importance of having products that are fresh as well as competitively positioned in a difficult market."

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